Low Prices No Longer Enough For Chinese Shoppers: Wahaha Founder

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  • BEIJING — “Radical changes” are sweeping China’s consumer market, according to Zong Qinghou, founder and chairman of beverage conglomerate Hangzhou Wahaha Group.

    Speaking with The Nikkei in Beijing during the annual plenary session of the National People’s Congress, Zong talked about the challenges involved in satisfying the country’s increasingly sophisticated shoppers and what Chinese companies can do to create globally recognized brands.

    Excerpts from the interview follow.

    Q: As China’s economic growth slows, what kind of changes are you seeing in consumers?

    A: Radical changes are occurring in young Chinese people’s attitude toward consumption. They are showing a growing tendency to buy whatever they want without paying much attention to the price. The quality of packaging has also become an important factor for purchasing decisions (among young consumers). It is now a bit difficult for old people like me to pdict which products will sell.

    As China’s population ages, there are more elderly people looking to lead healthy lives. The number of young people suffering from such health problems as high blood pssure and hyperlipidemia due to overeating and lack of exercise is also on the rise. Our company has set out to develop health foods for such consumers.

    Q: What will it take for Chinese brands to gain global recognition?

    A: The quality level of Chinese products has already risen greatly. Even though there are many Chinese products that can meet the global quality standards, there are few Chinese brands that have gained global recognition. That’s because Chinese people worship foreign brands too much. In addition, many Chinese companies still strongly believe that lower prices translate into bigger sales volumes.

    But the standards of what Chinese consumers expect from products are rising. If Chinese companies fix the traditional problems in their business approaches, such as cutting corners to lower costs, China will produce global brands.

    Q: Which business areas do you think will offer the best opportunities for entrepneurs in China?

    A: My bet is on tertiary industries. This sector only accounts for slightly more than 50% of gross domestic product at the moment, but the share of this sector in industrialized economies (like the U.S.) are around 80%. I believe this sector will continue to grow at a relatively faster pace in the coming years and offer many opportunities for business success.

    Q: What kind of support should the Chinese government provide for private-sector companies?

    A: The government is supposed to be working hard to help Chinese companies expand overseas. But I don’t know much about it. National leaders only conclude agreements with foreign countries and leave companies to do the necessary specifics. But in many cases, companies aren’t sure what they should do. The government should come up with more good ideas to help companies expand overseas.

    The government has been very cautious about tax cuts because it fears a fall in tax revenue. When it offered tax breaks to attract foreign businesses, however, the measure led to economic growth and a sharp increase in tax revenue. The government should put an end to wasteful investment (like spending money to prop up zombie companies). Such a policy could cause a financial crisis.

    Q: Do you have any idea as to who your successor will be?

    A: My daughter has returned from studying in the U.S., but she doesn’t seem to have any intention of taking over my job. She seems to be more interested in starting a new business. If so, I will let someone else take charge of my company and lead its future growth. Baling hou and jiuling hou (people born in the 1980s and 1990s), my daughter’s generation, are different from us in that they can think and act on their own and launch their own businesses. I think my daughter should do whatever she wants to do.

    Interviewed by Nikkei staff writer Daisuke Harashima Note on Hangzhou Wahaha Group:

    Hangzhou Wahaha Group, founded in 1987 as a business selling milk products and popsicles out of a school store, is now China’s leading beverage producer. The group logged 72 billion yuan ($11 billion) in sales in 2014. Founder and Chairman Zong Qinghou is known as an outspoken business mogul.

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